The Raghuram Rajan panel report has made a case for ending the 'special category' criteria for providing additional assistance to poorer states, as it ranked Goa and Kerala as the most advanced state and Odisha and Bihar the least.
The committee, headed by the then Chief Economic Advisor Raghuram Rajan (now RBI governor) which was set up by the government amid demand for "special category" status by Bihar, suggested a new methodology for devolving funds on states based on a 'Multi Dimensional Index (MDI)'.
Giving details of the report Finance Minister P Chidambaram today said the committee has suggested that the 28 states be split into three categories -- least developed, less developed and relatively developed -- depending upon their MDI scores.
As regards the allocation of funds, the report suggested that each state should get a basic fixed allocation and an additional allocation depending on its development needs and development performance.
The demand for funds and special attention of different States, Chidambaram said, "would be more than adequately met by the twin recommendations of the basic allocation of 0.3 per cent of overall funds to each State and the categorisation of States that scores 0.6 and above as least developed States."
According to the Committee, these two recommendations, along with the allocation methodology, will effectively subsume what is now "Special Category" status.
Bihar along with some other states have been demanding "special category" status to get more funds from the centre.
Based on the MDI scores, the 10 least developed states are Odisha, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, Uttar Pradesh and Rajasthan.
The seven most developed states are Goa, Kerala, Tamil Nadu, Punjab, Maharashtra, Uttrakhand and Haryana.
According to the report, the eleven less developed states are Manipur, West Bengal, Nagaland, Andhra Pradesh, Jammu and Kashmir, Mizoram, Gujarat, Tripura, Karnataka, Sikkim and Himachal Pradesh.
The report was likely to be implemented from the next financial year, Chidambaram said, adding "Prime Minister Manmohan Singh has directed that the recommendations of the committee may be examined and necessary action in this behalf may be taken".
The committee constituted in May this year was asked to suggest methods for identifying backwardness of states using a variety of criteria and also to recommend how the criteria may be reflected in future planning and devolution of funds from the Centre to the states.
The committee has proposed a general method for allocating funds from the Centre to the states based on both state's development needs as well as its development performance.
It has recommended that each state may get a fixed basic allocation of 0.3 per cent of overall funds, to which will be added its share stemming from need and performance to get its overall share.
The committee has come up with a Multi Dimensional Index (MDI) of backwardness based on per capita consumption as measured by the NSSO, the poverty ratio, and a number of other measures which correspond to the multi dimensional approach to defining poverty outlined in the Twelfth Plan.
The Committee has recommended that States that score 0.6 and above on the Index be classified as 'Least Developed'; states that score below 0.6 and above 0.4 be classified as 'Less Developed'; and states that score below 0.4 be classified as 'Relatively Developed'.
Chidamabaram said the demand for funds and special attention of different states would be more than adequately met by the twin recommendations of the basic allocation of 0.3 per cent of overall funds to each State and the categorisation of States that score 0.6 and above as 'Least Developed' States.
According to the report, the two recommendations, along with the allocation methodology, would effectively subsume what is now called 'Special Category' scheme.
The committee recommended that 'least developed' states, as identified by the Index, will be eligible for other forms of central support that the central government may deem necessary to enhance the process of development.
It said the approach recommended in the report was not intended to replace all existing methodologies but should be thought of as one that will channel some fund allocations based on need and performance.
Other methodologies may serve different purposes and should be used in parallel to allocate other funds.
The committee recommended that the index and allocation formula be examined after ten years and revisions proposed based on experience.
It further suggested that underdevelopment index should be updated on five years.
Read Below: Full Text of the Report
Raghuram Rajan Panel Report
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